Tax Fairness

Debate between Stephen Lloyd and Stephen Williams

Tuesday 12th March 2013 Commons Chamber

[Stephen Williams]

The Business Secretary is never wrong; he is a very wise man. I do not see any great difference between what he said and what I said on the record several times yesterday and over the weekend. We know what we mean by a tax for low and middle-income earners. We know what Labour Members mean as well—a reintroduction of the 10p tax rate, and that is why we disagree with them.

[Stephen Lloyd (Eastbourne) (LD)]

Will my hon. Friend give way?

[Stephen Williams]

I cannot give way again because I have now lost all my concessions.

The reason the Business Secretary—our shadow Chancellor, as he then was—proposed a mansion tax towards the end of 2009 was that property wealth in our country is woefully under-taxed. Our only property tax is council tax. In England, the top council tax band, band H, is twice the rate of the broadest band, band D, and three times that of the basic band, band A. That means, in effect, that in our only property tax the rate for a £10 million mansion is only three times the rate for a bedsit. That is clearly a ludicrous way to tax property. The band H top rate is only £320,000. Let us take as an example the royal London borough of Kensington and Chelsea, just along from where we are now. A £90 million mansion—I can see no other way to describe a £90 million house—in Kensington Palace gardens pays council tax of £2,151. That is the top rate of council tax that can possibly be paid in the London borough of Kensington and Chelsea—exactly the same as the rate for a small flat in that borough. That is a nonsensical property tax. That is why my party, the Liberal Democrats, backs the introduction of a mansion tax on properties with a value of over £2 million, with an annual levy of 1% on the excess over £2 million. That means that someone who had a £2.1 million mansion would pay mansion tax of £1,000 tax a year, while someone with a £3 million mansion would pay mansion tax of £10,000 a year.

The Minister and several other Members have asked what would happen to people who are asset-rich but income-poor. We have always had a very simple answer to that. In those cases, the tax would be rolled up and would crystallise once the property was sold and then be met from the sale price. That is a very simple concept for a very simple tax. We have also said that it should be a national tax, not a local tax. We have not hypothecated it to any particular tax measure, and we have not tied it to the reintroduction of a 10p tax rate as the Opposition have, which is why we do not support their motion. However, it could take us to the final milestone of getting to the £10,000 income tax-free threshold that I am reasonably confident will be announced very shortly. It could certainly contribute to getting the Liberal Democrats to where we wish to go next—that is, to making sure that every adult on the national minimum wage, which is currently £12,071, should not be caught in the income tax net. We may be able to make progress towards that in the latter days of this coalition, but it will certainly be in the Liberal Democrat manifesto in 2015; we are completely clear about that.

Labour Members have linked their mansion tax proposal—at least the concept, as they have not fleshed out what it really is—to the reintroduction of the 10p tax rate. I think it is fair to have a little look at Labour’s record on the 10p tax rate. I love Budget debates, and I have been in the House for all of them in the eight years that I have been an MP. In March 2007, I was sitting just where the hon. Member for Stockton North (Alex Cunningham) is sat on the Opposition Benches as I listened to last Budget speech of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in which he announced the abolition of the 10p tax rate. That was met on the then Government Benches with wild cheers and waving of Order Papers because it was to finance a cut in the basic rate of tax from 22% to 20%. Why was that being done? What was so crucial about its timing? As we know, the then Chancellor was heir apparent to the then Prime Minister, Tony Blair. He thought that there was going to be an autumn 2007 general election and that an income tax cut for better-off people in society, financed by the poorest, whom he assumed would always vote Labour, seemed like a good piece of populist politics—but it backfired and blew up in his face. Six years on, we are asked to believe that Labour wants to make good for that mistake.

There was another tax change in 2007 that does not get much attention. A lot of Labour Members here today were not Members of the House at that time, so I will forgive them for not remembering, but perhaps someone else on the Labour Benches wants to remind us of the other tax change that the former Prime Minister introduced in 2007. I see that there are no volunteers, so I will tell the House, because I can see that Members are now in suspense: it was a doubling of the inheritance tax threshold from £325,000 to £650,000 in a double-income household. That is Labour’s record in government: tax cuts for the wealthy. We know that they were completely discombobulated by the then shadow Chancellor’s announcement to the Conservative party conference of a cut in inheritance tax and were keen to match it.

I am sure that Labour Members love reading Polly Toynbee’s column every week and that it is compulsory reading at the breakfast table in Labour households and in the Tea Room. In her column in The Guardian this morning dear Polly said:

“Labour barely dared breathe on the riches that soared upwards on their watch.”

I could not agree more. At the time of its abolition, the 10p tax rate taxed incomes under £7,455 at 10%, but since taking office we have taken such incomes out of tax altogether. Surely it is better to be taxed at 0% than at 10%, so the coalition has been much fairer to people on low incomes.

That is not all that the coalition has done. We have restricted pension tax relief. Up to May 2010 under Labour someone could put more than £250,000 a year into their pension pot, whereas this year under the coalition the figure is only £40,000. We raised capital gains tax from 18% to 28% and stamp duty on properties worth more than £2 million to 7%. We might not have been able to persuade our coalition partners on an annual mansion tax, but we have persuaded them on a mansion duty when properties of that value are acquired.

We have done more to tackle avoidance. We set up an affluence unit in Her Majesty’s Revenue and Customs, which will examine in detail the affairs of 500,000 of the most wealthy people, and placed a 15% charge on domestic properties bought via a company—a classic example of avoidance that the previous Government did little to block, just as they did not block and, indeed, voted against disguised remuneration when we proposed to tackle it in one of our first Finance Bills.

We have been through many Opposition days, both in government and in opposition. When the votes are counted at 10 past 4, very little will have changed. What are the origins of this motion? We know that it is based on a policy stolen from the Liberal Democrats. I understand the right hon. Member for South Shields (David Miliband) also proposed it in his leadership bid, so one brother steals from the other as well as from the Liberal Democrats. This is pantomime politics, but nobody is laughing.